This topic will polarize people you talk to because everybody loves where they live for their own reasons.

Factors to consider include, travel time to work, cost of rent/schools, house size, proximity to night life, proximity to the tech hubs and VCs.

Live in San Francisco ("the city") if: you can handle really high rents or are willing to share with others, like living near night life (except night life finishes at 2am in San Francisco), a cool new tech hub to attract younger hipster engineers. Generally the city has pretty high crime. Some areas within the city are more dangerous than others (Tenderloin, Mission, Financial District and Richmond District). Cheaper rents in the city generally indicate more dangerous city living so be careful where you choose. Know that most public schools in the city are pretty terrible and so if you have kids you will need to pay $15k per kid for private schooling.

Live on the Peninsula (e.g. Foster City down to Palo Alto) if: you can handle really high rents, don't need to travel to the San Francisco very often, you're trying to attract really high end engineers from other famous Silicon Valley brand names (Oracle, Facebook, Google, etc). Want to live really close to VCs. Want to find good public schools.

Live East Bay in the hills (Piedmont, Oakland Hills, Montclair Berkely) if: you work in the city, have a family, need slightly lower rents, want a quick commute to the city, don't care about nightlife. Want to find excellent public schools.

Live far East Bay (Walnut Creek, Danville, etc) if: you can handle a 1 hr commute to the city, need a nice big house for family, can handle traffic troubles from time to time, can only afford reasonable rent, don't mind hot weather. Want to live closer to Tahoe.

Live in South Bay (from Palo Alto to San Jose) if: you work in one of the suburbs there - that includes Google HQ (Mountain View), Yahoo! (Sunnyvale), Facebook, SAP and many others. If you're looking for cheaper prices compared to the peninsula and still be close to the famous Sand Hill Rd (where all many bay area VC companies seem to congregate)

Very few Aussies in the tech community move to the bay area and live as far south as San Jose or as far north as Vallejo or Sacramento. Mostly because these tend to be much more isolated from any kind of life or work action. Although Google is very close to San Jose and so a lot of Googlers live near or in San Jose.

East Palo Alto. The rents may seem tantilizingly low and unbelievably close to downtown Palo Alto but this is one place to avoid. Once the murder capital of the US circa 1992 and the subject of the movie Dangerous Minds it's cleaned up a little since, but still not somewhere you want to call home.

Between the 82 and 101. Locals tell me that generally speaking, the streets between the 101 and 82 (El Camino Real) are to be avoided in all neighbourhoods.